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November 26, 2014

I think the
next 2-3 years are not going to be easy, just because we are in a bull market.
A few of you who decided
to invest when India was supposedly going down the drain, must be feeling
good about it. It is fine to feel good about it, but one should not get carried
away by it.

More noise

In a bear
market, as we had in the last 3-4 years, almost no one spoke about the stock
market except as a place to avoid. Unless you turned on one of the financial
news channels, it was easy to avoid any talk about it.

The
advantage of this comparative silence was that you could think investing
without too much distraction. The situation has changed quite a bit in the last
few months. We now have friends, colleagues and relatives, all getting excited
about the market. If like me, your acquaintances know that you invest in the
stock market, I am sure you must get badgered with tips for the top ten hot
stocks which will double in 21 days – small caps especially.

In my case
you can imagine the disappointment – recommending
people to invest in 2013 when no one wanted to, and being cautious now when
everyone and his dog thinks we are at the start of a multi-year bull run.

Feeling
envy

It is easy
to feel envy when you see others do better during such times. The media adds fuel to the
fire by publishing the list of stocks which have gone by 50 or 100 times in the
last 4-5 years. Ofcourse, they were silent when these stocks were starting the
journey.

In addition,
you now have friends and other investors boasting how they doubled their money
in the last six months, by buying the hottest idea.

One can
abandon his or her approach and start chasing such stocks which have worked
well for others in the past. From personal experience, I can tell you that this
never works out (atleast for me).

Unnecessary
churn

As the
market touches new high, I think some people get itchy to sell stocks which
have given high returns and recycle them into new positions, which ‘appear’ to
be cheap.

I am looking
for new ideas too, but will not do it for the sake of ‘doing something’, unless
I think it will add to the overall returns. If this means doing nothing for
long periods of time – so be it.

Let me
explain further – I currently have around 19-20 positions in my portfolio. I am
constantly looking for new ideas. As I am close to fully invested, I will have
to sell an existing idea, incur the brokerage and taxes (if any) and then buy
the new position. The implication of this decision is that I expect this new
idea which has been analyzed for a few weeks, will do better than an existing
company which I have analyzed and followed for more than a year.

There are
people who are smart enough to do this consistently – I am not one of them. I
do not want to take these decisions lightly. If the time horizon is 2-3 years
and more in my case, it is really important that I take a little more time to
think through this decision.

Being
patient is never easy

I have found
bull markets to be far more difficult to handle than other times. For starters,
it involves doing nothing for long stretches of time, when stocks are going up
and you are missing out on easy money ( that the easy money is lost in the end is a different
matter).

Let me ask a
few rhetorical questions (which I keep asking myself too) – is it really
important to have all the hottest stocks in your portfolio? Is it really
necessary or even possible to have the highest possible returns at all times,
if a lower rate of return at much lesser risk will meet your goals ? Is this
investing or just showing off?

The main
challenge we will face in the coming months and years is to keep our heads
amidst the euphoria. It is very easy to get carried away and starting buying
marginal companies showing profit and stock price momentum – I have done that a
bit in the past and it has always come back to bite me.

Let me
suggest a few activities to keep you busy while waiting for the right
opportunity

-Watch
TV soaps, especially the family dramas. They have a lot of twist and turns too
(or so I have heard)

-Take
up body building or weights. You will have chiseled body if the bull market
turns out to be a 10 year one J

-Go
for long walks and walk a little more every day. If this a long bull market,
you may be walking the whole day

-If
you are single, go to parties and have fun. If you have been investing in the
past and not partying, shame on you anyway – what a waste of youth!

For those of
you who like me, cannot do any of the above – keep faith and hope. This too
will pass. The skies will turn dark again, and they will be gloom and doom. You
will get your chance then J

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Stocks discussed in this post are for educational purpose only and not recommendations to buy or sell. Please contact a certified investment adviser for your investment decisions. Please read disclaimer towards the end of blog.

28 comments:

Great article Rohit. And very timely. Bull runs are indeed more difficult to endure for a value investor. Everyone around you is buying stocks and they are all going up. Sticking to your guns despite of that is tough.

I have a request. I have created a website www.eqax.com to help value investors screen the stocks using various ratings developed through our software. Could you please provide your feedback on it. I had sent you a mail earlier. I will resend it. I would really appreciate it.

Brilliant is the word....and very refreshing too.....the Punch lines made my morning:))......have you ever analysed Deepak Fert....I know there are issues but the track record is good and the high divi payout can give some cushion in case of violent fluctuations.....olanning to buy some below Rs.115....If any view pls share

It's a pity most people don't get this - "For those of you who like me, cannot do any of the above – keep faith and hope. This too will pass. The skies will turn dark again, and they will be gloom and doom. You will get your chance then :-)"

I have asked so many people - "If you are in the market to buy shares, why do you want the stocks to go up??"

An extremely well-written piece. Only one thing is not clear - if one is fully invested why will he wait for a downcycle? Switching is a continuous process and does not require patience. People wait for the perfect pitch only to buy or sell.

Thx for the response.I too dropped the idea of investing into Deepak Fert...Gas supply overhang,takeover of MCF,unnecessary venture into real estate etc is too much for me to handle.and to top it all they have not made much headway with Desai Fruits.

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Disclaimer

I do not provide investment advisory service via this Blog. The stocks discussed on the blog and each post are for educational and discussion purposes only and are not recommendations to buy or sell stocks.I may or may not have a position in the stocks discussed on this blog. For any investment decision, please contact a certified investment advisor.